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Eileen Norcross, senior research fellow at the Mercatus Center, discusses the fallacies with film tax credit incentives. States are realizing net losses on these types of incentives, yet state lawmakers continue to fall for this Siren song:

From Massachusetts to North Carolina, Michigan and Iowa, a similar picture is emerging: Film tax credits don’t deliver to state economies what they cost to treasuries and taxpayers.

What does a legislature do during a once-in-two-years legislative session? Help special interests! That’s what happened in Nevada, where the state created a subsidy for the film industry and guaranteed benefits for utility shareholders. Geoffrey Lawrence writes:

In a boon to utility shareholders — principally Warren Buffett, pending approval of the utility’s sale — ratepayers will be forced to continue paying the utility for its abandoned investment in Reid-Gardner as well as its construction of the replacement power plants. Similar legislation passed in Colorado in 2010 is expected to increase power bills of that state’s ratepayers between 11 and 50 percent…

Buffett wasn’t the only mega-millionaire to successfully get state lawmakers to hand over your money, however. Lawmakers swooned around actor/film producer Nicholas Cage when he appeared in Carson City, personally requesting a handout that would pay film producers to shoot movies in Nevada.

Empire State Governor Andrew Cuomo and the legislature have helped to grease the show’s eastward move with a special new tax credit available only to big-budget television programs that relocate to New York. According to the state’s new budget the credit is aimed at “a television production that is a talk or variety program that filmed at least five seasons outside the state prior to its first relocated season.” Oh, and the show has to be filmed in front of a studio audience of 200 or more and spend at least $30 million in annual production costs in New York. How’s that for a very specific special interest?

Dan Boyd at the ABQ Journal in New Mexico writes about recent legislation aimed to provide benefits to filmmakers in the state, a policy that has failed elsewhere:

Backers of the legislation say it would reinvigorate the state’s film industry, which sagged after new restrictions were enacted in 2011.
But skeptics, some of whom voted for the bill, said the state’s film rebate program has given rise to a corporate welfare system.

“Basically, we’ve created a dependent here, and you can’t cut your dependent child loose,” said Senate GOP Whip William Payne of Albuquerque.

The Nevada Policy Research Institute recently reported the truth concerning film subsidies; they do not help economic long-term growth. Recent studies by the tax foundation have found that although film subsidies might have some benefit in the short-term; they create long-term problems for the states. The good news is that it appears that both left and right agree on something: Corporate welfare and cronyism must end.

“I don’t think they’ll create any useful industry in the state,” said Joe Henchman, vice president of the Washington, D.C.-based Tax Foundation, a right-leaning organization that published a highly publicized study on film subsidies. And in Louisiana, a report from a left-leaning watchdog organization, the Louisiana Budget Project, calls film tax credits “Costly Giveaways to Hollywood” that “Louisiana lawmakers ought to rein in.”

“We recognize that people have invested and started businesses here,” Moller said, “but Hollywood is a very mobile industry, and most of these productions aren’t set up for long.” The Tax Foundation reached a similar conclusion, noting that film incentives could spur short-term growth but are a bad long-term policy for any state: While broad-based tax competition often benefits consumers and spurs economic growth and development, industry-specific tax competition transfers wealth from the many to the few.

Jeff Jacoby writes an opinion piece at the Boston Globe about tax preferences given to businesses in Massachusetts, how they’ve failed in the past, and why a new proposal to subsidize Broadway shows will also fail (subscription required):

The Massachusetts film tax credit program has been a flop, a taxpayer rip-off that enriches one of the nation’s most profitable industries while choking off funds from more pressing public needs. Naturally, some legislators are now eager for a sequel…

A bill introduced on Beacon Hill would grant up to $3 million in tax credits for Broadway-bound shows that play in Massachusetts before moving to New York or a national tour. “Advocates of the proposal,” the Globe reported this week, “say the credits would create hundreds of jobs and drive millions of dollars of business in Massachusetts.” Now where have we heard that before?

When you go to the movie theater, do you go to watch a movie or to buy BBQ sauce? That sounds like a strange question, but consider the following story.

Warren Theaters in Wichita, Kansas, is now selling Brewer’s Best BBQ Sauce. Why? It may not be coincidence that the sauce company is owned and operated by the Mayor.

Rewind to 2010 when Mayor Brewer championed Warren’s application for incentives suggesting other cities where waiting to jump if Wichita didn’t put its taxpayers on the hook to support Warren’s IMAX theater. Industrial Revenue Bonds were approved, saving Warren from paying $630,000 in sales taxes and an estimated $136,099 a year in property taxes. Three years later the theater is now selling Brewer’s BBQ sauce to movie goers. One is left wondering if the theater plans on expanding its line of grocery items.

Stories like this mark a growing trend of all too cozy relationships between local and state governments. The film industry has jumped on the bandwagon of incentives. There are currently 44 states (plus DC and Puerto Rico) that offer some sort of movie production incentive. Whether it’s $1 million to train film industry employees in North Carolina or $100 million to “pay Hollywood to stay in Hollywood,” filmmakers across the country are benefitting from the “arms race” for movie locations among the states.

If you think that movie production incentives are good for the economy, you might want to consider the overwhelming cost. States offered $1.3 billion in film incentives in 2011.

Nearly all filmmakers are enticed by these credits, even ones making substantial profits. Consider Disney, which took $183 million in tax credits in 2011 despite making $40.9 billion in revenue.

To the extent that government remains in the business of handing out cash to its friends, lobbying the government for special favors is rational, even if it is harmful to taxpayers. So the next time you ruin your alignment on a pothole or are complaining about not having enough teachers in your child’s school, don’t get upset – you can always go watch a taxpayer-subsidized movie and check out the selection of sauces made by your local elected officials.

Sylvain Charat writes an article in Forbes about the French film industry, and how cronyism has caused it to be unsuccessful:

French government agencies are funding the arts, culture, and the movie industry through the National Center of Cinematography and the Moving Image (or CNC). As of February 2012, its liquid assets amounted to $1.3 billion. Through its 46 committees, the CNC is distributing money to movie producers, filmmakers, and actors. Thomas Langmann, who produced “The Artist,” provided some insight into the the CNC’s decision-making process: “it is an agency based on cronyism and it gives money to movies which, without it, would never have had a chance to be produced.”

This should be a warning to the American film industry, which seems happy to accept more and more state and federal tax incentives.

Yaël Ossowski writes an article for Reason explaining how Disney is among a certain group of businesses advocating for the special tax provisions for the film industry:

According to the latest lobbying disclosure report submitted to the Senate, lobbyists for Disney pushed to extend millions in federal film credits in the final spending and tax deal adopted by Congress Jan.1, hidden among hundreds of other “tax extenders.”

…In 2010, Disney received $110 million through the federal tax credit, nearly 75 percent of the total $150 million allocated by Congress.

Maureen Bader at the Wyoming Liberty Group writes about the state’s film incentive program:

In the 2013-14 budget, Film Wyoming has an appropriation of $900,000 from a general fund (which, incidentally, is not subject to the 8% budget cut) to hand out to private businesses. Cutting this handout program would potentially save Wyoming taxpayers $900,000 per year in subsidies to business, not to mention the cost to manage the program. This cost is absorbed by the Wyoming Tourism Board and includes: staff salaries and benefits, out-of-state travel, advertising, sweepstakes promotion, the development of a trade show booth and touring film professionals around the state.